Pentagon requests plan to close stateside commissaries

November 21, 2013

by Tom Philpott

Tasked by Defense Secretary Chuck Hagel
to find ways to preserve force readiness amid sharply falling budgets,
his comptroller and the Joint Staff have asked the Defense Commissary
Agency (DeCA) for a plan to close all stateside base grocery stores, say
military resale community sources.

Time will tell if this is just the
loudest warning shot yet fired by a department desperate for budget
relief, or if stateside commissaries, still enormously popular with
military families and retirees, are viewed by current military leaders
as a costly relic burdening a financially stressed force.

Under Secretary of Defense Robert Hale,
the department’s top financial adviser, and Air Force Lt. Gen.
Mark F. Ramsay, director of force structure, resources and assessment
for the Joint Staff, reportedly requested the plan in a meeting with
military personnel policy and commissary officials.

It was to be briefed soon to Deputy
Defense Secretary Ashton Carter and Adm. James Winnefeld, vice chairman
of the Joint Chiefs of Staff.

Another high hurdle if the plan is to
be included in the Obama administration’s fiscal 2015 defense
budget request would be sign off by the Office of Management and Budget
and the White House. The military resale industry already has
reminded Hagel in a letter that, at Camp Pendleton, Calif., Aug. 7, President Obama told
Marines that closing commissaries is “not how a great nation
should be treating its military and military families.”

Also, First Lady Michelle Obama and
Jill Biden, the vice president’s wife, have for several years led
a nationwide initiative in support of military families, called Joining
Forces. It is hard to imagine them staying silent as action is
taken to end prized discounted grocery shopping on base.

Commissaries rely on taxpayer subsidies
of $1.4 billion a year to operate 247 stores worldwide. They now
face their gravest threat in decades because of the budget sequestration
tool formula in the 2011 Budget Control Act, and Congress’ failure
to replace it with a balanced debt-reduction deal.

Military leaders have testified often
this year that they can’t roll back weapon programs or shrink the
force fast enough to absorb in balanced way $50 billion a year in cuts
demanded from sequestration. So operations, maintenance and
modernization dollars are decimated to achieve near-term savings.
Training and readiness are plummeting, say the service
chiefs.

In that environment, commissaries have
become “ground zero” for deeper cuts, said an industry
official. Those dollars are coveted to support other needs such as
flying hours, ship streaming days and troop unit rotations to combat
training centers. Closing almost 180 stateside stores could free
up $800 million to $900 million annually, by some estimates.

Asked to confirm if Hale requested a
plan to close stateside commissaries, Navy Cmdr. Bill Urban, a DoD press
officer, said Hagel “has made it clear on numerous occasions that
all cost-cutting efforts need to be on the table for [DoD] to meet the
spending caps associated with the 2011 Budget Control Act. At this
time, no final decisions have been made on the…fiscal 2015 budget
submission. Therefore, it would be inappropriate to discuss any
specific budget decisions.”

At a hearing Wednesday of House armed
services subcommittee on military personnel, its chairman, Rep. Joe
Wilson (R-S.C.), asked DeCA Director Joseph H. Jeu about a directive the
agency got from defense leaders last February ordering an independent
study to cut commissary costs up to 28 percent. Wilson, who
promises to defend the benefit, asked when Congress could see the
study.

“Due to sequestration,” Jeu
said, “the department is reviewing all of its programs and
nothing, including commissaries, is off the table.”

Jeu declined to discuss the directive
or study further. But another witness did, Thomas T. Gordy,
president of the Armed Forces Marketing Council, which represents
brokers doing business with military stores.

Gordy testified his group was
encouraged over the summer to hear that the department was considering
cuts for DeCA lower than 28 percent.

“However,” he
said, “in recent weeks we understand the Joint Staff has asked
DeCA to look at cutting its budget 33 to 66 percent.”

Gordy revealed three ideas DeCA weighed
in recent months that would lower patron savings but preserve stateside
stores. One would double the patron surcharge, from five percent to 10
percent of the cost of goods sold. A second would increase
commissary prices worldwide by two to three percent, enough to cover
agency costs for shipping goods to overseas stores.

A third is an “enhanced
commissary” model that would allow stores to sell wine, beer and
health and beauty products at a profit, to offset the cost of store
operations. Critics worry this one could endanger base exchanges
or department stores, which operate for profit. Some exchange
profits fund morale, welfare and recreational facilities on
bases.

With support from industry,
commissaries have been shaped into a model of efficiency for the entire
department, argued Patrick Nixon, president of the American Logistics
Association, which represents manufacturers and vendors of products sold
in base stores.

Though commissaries have shared in the
pain of sequestration, including furloughs and hiring freezes, Nixon
said, “that may not be enough to feed the budget beast. Some
defense planners want far more. They seek to reduce the commissary
budget far beyond that being asked for any other defense
program.”

Commissaries save patrons more than 30
percent off supermarkets prices, Jeu testified, with average annual
savings for a family of four of almost $4500.

Rep. Joe Heck (R-Nev.) asked Jeu to
react to the cost-saving ideas Gordy described and criticized.
Each would lower patron savings, Jeu said.

But Heck noted that doubling the
surcharge, for example, would lower savings for a family of four by only
$225 a year, to $4225, to help preserve the benefit. Given fiscal
challenges, hard decisions are needed, Heck said.

“We have got to look at the
cost-benefit of each one of these, and I would encourage you to take
that kind of perspective,” he told Jeu.